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ULIPs or Unit Linked Insurance Policies offer a combination of life insurance and investment. You can invest through them in equity as well as debt, just like mutual funds. You also get life insurance cover. However overall ULIP structures can be hard-to-understand and feature hefty charges. Some ULIPs, however, do stand out on performance, simplicity and low cost. In this article, we look at how Bajaj Allianz Life Goal Assure is faring.

Bajaj Allianz Life Goal Assure has some good equity funds and a series of investment strategies that resemble their mutual fund counterparts such as Systematic Transfer Plan (STP). It has also made deep cuts to some of the common ULIP charges that pull down investor returns. On the other hand, the company’s debt funds have underperformed and some unnecessary features such ‘loyalty bonuses’ and ‘fund boosters’ add to the complexity.

One feature we particularly like lets you choose whether to receive the maturity benefit as a lump sum or as income spread over a period of five years. Choosing the income option will give you an additional 0.5% on each withdrawal (called a return enhancer).

How Life Goal Assure works

This ULIP has premium payment terms of 5 to 20 years.

If you die during the policy term, you get the highest of:

10 times the annual premium

Fund Value. This can exceed 10 times the annual premium if the ULIP funds perform well.

The policy grants a ‘loyalty’ addition, a percentage of one premium from the 6th year onwards, provided all premiums have been paid up-to-date. It will also pay you a ‘fund booster’ or a top-up on the value of your annual premium after 10, 15 and 20 years from policy commencement.

Costs

Premium Allocation Charge: None.

Policy Administration Charge: Rs 400 (hiked by 5% each year), levied by cancelling fund units. This charge adds to complexity and cost but the company has maintained it at a relatively low level.

Mortality Charge: The policy will also return you the mortality charges at the end of the premium paying term. These charges are levied to cover the cost of providing you with life insurance (the pure life component, if you will). This is a really great feature of this policy.

Fund Management Charge: This ranges from 0.95% for the liquid fund to 1.35% on some of its equity funds.

Discontinued Premium Charge: This charge is imposed if you surrender the policy before maturity or default in paying premiums as per the policy structure. This charge will be waived after 5 years of the commencement of the policy.

Switching Charge: This is typically levied when you switch between ULIP funds, akin to an exit load in mutual funds. Goal Assure does not have this charge for ‘Investor Selectable Strategy’ in which the policyholder selects which fund to invest in. Switching isn’t allowed for any of the other strategies mentioned below, however, you can change strategies every policy anniversary by giving the company a notice of 30 days.

Strategies

The ULIP offers four portfolio strategies that move your money between the ULIP funds:

Investor Selectable Strategy: You can choose from any of the eight funds available under the ULIP to invest in.

Wheel of Life Strategy: Allocates money by looking at the years the policy is left with. As the years pass, the strategy automatically moves money from equity to debt and liquid funds to reduce risk.

Trigger-based strategy: Does a 75:25 split between the Equity Growth Fund II and the Bond Fund. It defines certain triggers based on market movements (eg: 10% correction) to change this split.

Auto-transfer strategy: Essentially an STP or Systematic Transfer Plan. Your premium is initially invested in a liquid or debt funds and then moved every month to equity funds.

As seems to be the case with HDFC Life Insurance as well, equity funds of ULIPs comfortably outperform their benchmarks but debt funds do not. The relatively high fund management charges on debt funds may be partly responsible. Two of the funds being recently launched have three rather than five-year data. The Pure Stock Fund II delivered 7.75% annualized compared to the Nifty 50’s 5.32% and the Asset Allocation Fund II delivered 6.47% compared to 8.47% on its benchmark, reinforcing equity fund outperformance, debt fund underperformance trend.

Conclusion

This ULIP goes the extra mile to cut your costs by eliminating the premium allocation charge and refunding the mortality charge. The investment strategies offered by it (especially the STP like auto-transfer strategy) give you a set of great options to reduce your risk and allocate your money. Its equity funds have done well and outperformed their benchmarks. If you are looking at ULIPs because you have both insurance and investment needs, this ULIP has plenty to offer.